Lenders’ Closing Plans Solidify As August 1 Approaches

news news news Citibank recently notified settlement agents (closing attorneys in South Carolina) that they will be requested to register with the FPSDirect Vendor Website at the time they agree to handle a Citibank closing. This website was created to provide the bank’s settlement agents with an easy and efficient method of loan document delivery, closing date confirmation and funding approval, among other matters. The memo stated the bank’s goal is to save the time of faxing and the insecurity of email.

Wells Fargo issued a Settlement Agent Communication on March 16 indicating that, like Bank of America, it plans to integrate with Closing Insight™ with a goal of improving the way instructions, fees and other information is shared. The memo stated: “Unlike today where we typically use email to pass these important details back and forth, Closing Insight™ will support an interactive, online collaboration that includes a full view of information from both parties, and provides an audit trail and quality checks to reduce errors.”

We have learned and the Wells Fargo communication states that many closing attorneys will be able to access Closing Insight™ through connections with their existing software packages. Wells’ communication also states that attorneys without closing software packages will not be left out because a secure web portal will be available. Wells reiterated its goal of continuing to do business with local service providers, but emphasized that it expects closing attorneys to be ready, willing and able to comply with requirements and closing instructions.

Wells Fargo also answered four recent FAQs:

“If co-borrowers plan to sign the loan documents on different dates, which date applies for compliance with the three business day receipt requirement of the CD? The borrower’s CD must have been received not less than three business days before the earliest signing date. This question highlights the importance of communicating specifics about signing plans to your Wells Fargo closing contact, including cases when a mobile signing agent or mail away signing is being requested.

Will Wells Fargo be providing loan closing documents to the settlement agent at the same time the borrower’s CD is delivered? Our goal is to provide the closing documents to the settlement agent shortly after the borrower’s CD has been finalized and provided to the borrower. In most cases, you should receive the closing documents earlier than in the past.

Will Wells Fargo permit any other party to deliver the borrower’s CD to meet the three business day closing requirement for a rush closing situation? No. We have determined that we must be responsible for delivering the borrower’s CD to meet and track the three business day receipt requirement for all transactions We will continue to encourage all parties involved to stay in close communication and work together proactively to minimize the need for expedited CD delivery.

Is my company required to be ALTA Best Practices Certified by August 1 to continue to close Wells Fargo loans? No. Completing your certification by August 1 will not be a Wells Fargo requirement. However, we hope that if your company is not yet certified you will – at minimum – have already completed a self-assessment and addressed any identified gaps. As communicated in our March 6, 2014, newsletter, Wells Fargo supports the ALTA Best Practices as sound business practices that should ideally already be in place for businesses providing title and closing services to our customers.”

Wells Fargo also stated that it has entered into a business arrangement with ClosingCorp, a leading provider of fee management solutions, to obtain actual fee information from selected settlement agents who closing a high number of Wells Fargo loans.

Lenders Announce They Will Control More of the Residential Closing Process

Regional bank will require third-party BP certifications on a short time frame!

Let’s take the big bank first. Bank of America recently shared more details about changes in its closing processes after August 1, 2015. In addition to delivering Closing Disclosures, BofA will take the responsibility for complying with the three-business day waiting period. It will not require closing attorneys to monitor the timing of the delivery of the initial CD or any required re-disclosures.

BofA stated that close collaboration will be needed with closing attorneys for requests of information and notices of all loan and fee changes through its selected platform, RealEC® Technologies Closing Insight™. Closing attorneys will be notified of re-disclosure requirements and new closing dates through Closing Insight™.

BofA said it expects to engage closing attorneys to begin fee collaboration a minimum of ten calendar days prior to closing, and it intends to generate and send the CD six business days prior to closing.*

Now let’s look at an interesting announcement from a small bank, and please pay attention to the short time frame.

Mississippi based regional BancorpSouth announced in early March that its approved closing must comply with ALTA’s Best Practices through a certification from an independent third party vendor acceptable to the bank. Self-certifications will not be accepted.

The announcement stated that Memphis Consumer Credit Association and many of the large accounting firms have agreed to provide the certification. The bank asked closing attorneys to advise by March 23 whether they intend to obtain the certification. And the deadline for obtaining the certification was stated to be July 31.

*In almost all South Carolina transactions, we expect the “consummation date” to be the same as the closing date and the same as the date BofA refers to in this memorandum as the signing date.

Three Lenders Make CFPB Announcements

Two additional lenders will deliver the borrower’s Closing Disclosure

Citi and Chase have joined Well Fargo and Bank of America by announcing that they will deliver borrowers’ Closing Disclosures after the CFPB rules take effect on August 1, 2015.

Citi’s announcement was made on January 28, 2015, followed by Chase’s announcement on February 26. Both lenders stated that closing attorneys will continue to be responsible for sellers’ Closing Disclosures in purchase transactions. Closing attorneys will be required to deliver copies of sellers’ Closing Disclosures to the respective lender.

Citi’s announcement shared some information with its settlement agents that has previously been made clear by the rule itself. That is, there will be several weeks or months after August 1 when the old forms will be used because it is the application date as of August 1 that triggers the use of the new forms, and early use of the Closing Disclosure is not allowed. Citi also pointed out that the new rules do not apply to home equity loans.

Closing attorneys should note that their software systems will have to accommodate old and new versions of the forms because of the transition and because all loans will not be subject to the new rules.

Union Bank announced on February 26 that it will use the web-based tool Closing Insight™ to simplify the multi-party closing process and support efforts to ensure regulatory compliance. The announcement stated that no other means of communication or document delivery will be accepted.

We will continue to read and keep you informed!

Closing Attorneys and Paralegals: Want to toss and turn at night?

Read about this costly law firm mistake.

(This case makes my stomach hurt because a developer client of mine once declared bankruptcy. Everything I had done for that client for the prior three years was scrutinized, and I spent some sleepless nights!)

On January 21, 2015, the Second Circuit Court of Appeals in Manhattan decided a direct appeal from a U.S. Bankruptcy Court involving a mistaken UCC-3 termination statement.* This case involves the General Motors bankruptcy.

The facts concern a 2008 payoff by GM to JP Morgan Chase of a $300 million synthetic lease. GM contacted its outside counsel to prepare the necessary documents. A partner assigned the work to an associate and instructed him to prepare a closing checklist and drafts of the necessary documents. The associate asked a paralegal who was unfamiliar with the transaction to perform a UCC search that search identified three UCC-1s. Two of the UCC-1s related to the subject loan. The third, however, was related to a term loan between the same parties. The law firm prepared UCC-3 terminations for all three financing statements.

No one at GM, its law firm, JP Morgan or its law firm noticed the error. When the loan was paid, all three
UCC-3s were filed.

The mistake was not noticed until GM filed bankruptcy in 2009.

In litigation with the unsecured creditors, JP Morgan argued that the third UCC-3 was unauthorized and ineffective because it intended to terminate only the liens that related to the synthetic lease. The Bankruptcy Court agreed on the grounds that no one at JP Morgan or its law firm intended to terminate the third UCC-1.

The Second Circuit certified a question to the Delaware Supreme Court, asking, basically, whether a termination is effective when a lender reviews and knowingly approves a termination statement for filing or whether the lender must intend to terminate the particular security interest. The Delaware Court replied that intent is not necessary, stating, “If parties could be relieved from the legal consequences of their mistaken filings, they would have little incentive to ensure the accuracy of the information contained in their UCC filings.”

The Second Circuit agreed, indicating JP Morgan authorized the termination even though it never intended to.

Lawyers and paralegals: be careful, be careful, be careful! And now try to get a good night’s sleep!

* Official Committee of Unsecured Creditors of Motors Liquidation Company v. JP Morgan Chase Bank, N.A.,U.S. Court of Appeals for the Second Circuit, Docket No. 13-2187, January 21, 2015.

Good News for Small Lenders

CFPB proposed rule change may also benefit South Carolina closing attorneys.

On January 29, the CFPB proposed its ability to repay and qualified mortgage rules to facilitate additional mortgage lending by credit unions and community banks. South Carolina closing attorneys who handle transactions for small lenders could benefit from these proposed rule changes because the business coming from these lenders would increase in volume.

Comments are due on the proposals by March 30. South Carolina closing attorneys should consider commenting positively on this proposal.

“Responsible lending by community banks and credit unions did not cause the financial crisis, and our mortgage rules reflect the fact that small institutions play a vital role in many communities,” said CFPB Director Richard Cordray.

Credit unions and other small lenders have been lobbying for flexibility under the new rules, and this development is considered to be a victory for them.

The proposed rules would expand the definition of “small creditor” by raising the limit on first lien-mortgages from 500 to 2,000, excluding the mortgages held in the portfolios of the creditor and their affiliates. The CFPB said that this change would increase the approximate number of small lenders from 9,700 to 10,400.

Small lender status allows these lenders to make loans where the homeowner’s total debt payments exceed 43 percent of pretax income.

The proposal would also extend the ability of small creditors in rural or underserved areas to issue loans with balloon payments and still have them qualify as qualified mortgage loans. The definition of “rural” was extended to any census block that is not in an urban area as defined by the Census Bureau.

A copy of the proposal can be found at the Consumer Financial Protection Bureau’s website, or by clicking here.

Need to Foreclose a Mortgage Securing an eNote?

Indiana case may provide guidance

South Carolina has no reported opinions concerning mortgage foreclosures involving eNotes, and little authority exists elsewhere on what a holder must prove to successfully foreclose a mortgage secured by an electronic note in a judicial state. Until we see opinions closer to home, an Indiana case may provide the best guidance. Solid evidence of control of the note seems to be the key factor, according to this case.

In Good v. Wells Fargo Bank, 18 N.E.3d 618 (Ind. App. 2014), Wells Fargo acted as servicer for Fannie Mae, the owner of an eNote that was registered with MERS. The original lender had been Synergy Mortgage Group, Inc. MERS, as nominee for Synergy, had assigned the mortgage to Wells Fargo.

An officer of Wells Fargo executed an affidavit in support of summary judgment stating that Wells was the servicer, that it maintained a copy of the note, that its systems provided controls to assure that each note was maintained accurately and protected against alteration, and that the paper copy of the note attached to the affidavit was a true and correct copy.

The affidavit was bolstered by testimony at the bench trial that Wells Fargo controlled the note and was entitled to enforce it as the holder pursuant to 15 U.S.C §7021 (a section of the eSign legislation). Wells’ underlying position appeared to be that the normal requirements of the UCC-3 governing negotiable instruments (delivery, possession and an endorsement), were not required in the case of an electronic note.

15 U.S.C. §7021 creates the concept of a note as a “transferable record”, a single authoritative copy, which is unique, identifiable, and unalterable. The legislation establishes that the holder must have control of the note in the sense that the system for tracking it must reliably establish that the person seeking to enforce it is the person to whom the record was transferred. Also, the authoritative copy of the record itself must indicate the identity of the most recent transferee.

The Indiana appellate court found Wells’ affidavit insufficient to support a grant of summary judgment on the issue of Wells’ holder status and its evidence on the matter at trial “conclusory”.

The court said it was unclear from the affidavit whether Wells was claiming to have possession of an endorsed paper copy or the electronic note itself. The affidavit was also found lacking because it did not assert that Wells had control of the record (the eNote), either by maintaining the single authoritative copy in its own system, or by being identified as having control of the single authoritative copy in the MERS system.

The court indicated the eSign statutes require the party enforcing the note to provide reasonable proof of its control of the note through detailed evidence, not merely “conclusory statement”. The court specifically pointed to the lack of evidence in the Wells’ affidavit as it related to a transfer or assignment to Wells Fargo or Fannie Mae of the note from the original lender.

We are likely to see similar cases from other jurisdictions, including South Carolina, with the increasing use of eNotes. Stay tuned!

Homeowners Win U.S. Supreme Court Mortgage Rescission Case

The Court holds borrowers must only notify the lender, not sue, within three years

Larry and Cheryle Jesinoski refinanced their home in Eagan, Minnesota on February 23, 2007, by borrowing $611,000 from Countrywide Home Loans, Inc. The borrowers received a Truth-in-Lending Act (“TILA”) disclosure and a Notice of Right to Cancel at the closing.

TILA allows a borrower to rescind a refinance loan on the borrower’s home within three days of the transaction, or until the lender has delivered the required number of disclosures. But there is a three-year time limit even if the lender still hasn’t provided the necessary loan disclosure documents.

Exactly three years after the closing, the Jesinoskis sent the lender written notice that they wanted to rescind, saying they hadn’t received the required number of copies of the notice. The property was underwater at the time. The lender refused to cancel the mortgage, and the Jesinoskis sued.

On January 13, 2015, the Court ruled unanimously in an opinion written by Justice Antonin Scalia, that the borrowers need only notify the lender of the intent to rescind. The Court rejected the lender’s position that the borrower must take the additional step of filing suit within three years.

This issue is one that has arisen frequently in recent years with borrowers who are in default and facing foreclosure, and this case settles a split in lower courts over steps borrowers must take within the time limit.

The lending industry had supported the lender in this case, indicating the Jesinoskis’ position could cloud titles to properties and require lenders to sue borrowers instead of trying to work with them. Consumer groups had supported the Minnesota couple, indicating the right to rescind is an important protection for consumers against abusive lending practices.

The case was remanded to the Eighth Circuit for further proceedings. The ruling does not mean the borrowers will escape paying their mortgage, but this lawsuit has delayed the inevitable for many years. It is possible that the property is no longer underwater and that the borrowers may be able to refinance in this improving economy.

Don’t Expect Uniform Closing Procedures in 2015

And … Bank of America makes a big announcement.

Lenders will not collaborate on a standard and consistent process for closings under the new CFPB rules effective August 1, 2015, at least not according to Wells Fargo.

Wells Fargo’s December 10, 2014 Settlement Agent Communication answered nine FAQs from settlement agents, the first of which sought confirmation on whether to expect standard closing procedures from lenders. Wells responded with a “no,” and stated that each lender is accountable and must determine its own method for achieving compliance.

This mega lender had announced on September 24 that it will control the generation and delivery of the buyer/borrower Closing Disclosure (“CD”), the form that will replace the HUD-1 Settlement Statement. The stated rationale was that the new CD is governed by the Truth-in-Lending Act (“TILA”), not the Real Estate Settlement Procedures Act (RESPA), and the risks and penalties for lenders are more severe under TILA.

Bank of America announced on December 17 that it will follow suit by generating and delivering the buyer/borrower CD. Both banks have indicated settlement agents will generate the seller’s CD. Other lenders have not announced whether they will follow this procedure. It is entirely possible that settlement agents (closing attorneys in South Carolina) will prepare the CDs for other lenders.

The December 10 memo did state that Wells will work closely with settlement agents to determine fees, prorations, and other content required for the CD and, importantly, Wells will not assume the responsibility for disbursing loans. This quote from the Communication provides some comfort with regard to Wells’ attitude about keeping local settlement agents involved in the closing process:

“The settlement agent is critical and continues to be responsible for executing the closing including document signing, notarization, disbursement of funds, document recordation and delivery of final documents post-closing.”

Also comforting was the promise of training plans for settlement agents in collaboration with American Land Title Association, title underwriters and other service providers. The plans are said to include many educational communications and an information guide.

Bank of America stated that it will use Closing Insight™, an industry tool developed by Real EC Technologies®. All documents, date and information will be exchanged through Closing Insight™, discontinuing the use of e-mail, fax and other document delivery methods.

Bank of America also indicated that the requirement for the buyer/borrower to receive the CD three business days prior to closing will intensify the need for the bank to work very closely with the settlement agent to schedule the details of the closing.

For more information about Real EC ® Technologies and Closing Insight™, Bank of America invited settlement agents to visit their website at www.bkfs.com/realec. The December 17 memo indicated that many title and escrow production systems are working with RealEC® Technologies to enhance current integrations in support of Closing Insight™. The bank suggested that settlement agents reach out to their title and escrow production system provider directly.

Stay tuned!

Lions, and Tigers and Seller Financing, Oh My!

If you are closing seller financed transactions on primary residences including contracts for deed (hereafter referred to as seller financing), or if you have clients who are accepting seller financing, you should take the time to educate yourself and your clients on the current pitfalls. Please refer to Martha McConnell’s excellent article entitled “Seller Financing – the New ‘Jabberwocky’!” in the Summer 2014 issue of Chicago Record Title for a detailed report on what has led to this serious concern.

Because it is a complicated issue, I am not sure I can express a bottom line in any kind of succinct manner, but I will attempt to do so here.

The CFPB has been given the power to supervise and regulate laws that impact seller financing, including the SAFE Act, TILA, the Ability to Repay and Qualified Mortgage Rule, HOEPA and the Loan Originator Rule.

Under the applicable federal rules, it is possible that sellers engaging in seller financing may have to become licensed as “loan originators” or “mortgage brokers”. The loans may have to be fully amortized, and it is possible that these seller/lenders may have to make determinations and disclosures that have not previously been required. Certain exclusions are available, but the rules are complex and detailed, and should be handled with care.

Inconsistencies between the federal and state versions of the SAFE Act, both of which require licensing and registration of loan originators, is another area of concern.

Clients who fail to become licensed or to fall into an exclusion may find they are unable to foreclose, and may, along with the attorneys who closed the transactions and the title policies that insured them, be subject to claims and litigation. In addition, the CFPB has broad enforcement powers including the power to impose civil monetary penalties ranging from $5,000 to $1 million per day.

This is an area of the law that is going to require monitoring and thought in the coming months. Legislation in South Carolina to address the inconsistencies in our version of the SAFE Act may be one avenue for improvement. In the meantime, please take great care if you or your clients venture into seller financing.

Who Will Get On the Wells Fargo Wagon?

Wells Fargo announces it will generate and deliver the Closing Disclosure

Wells Fargo announced on September 24, 2014 that it will generate and deliver the borrower’s Closing Disclosure when the TILA-RESPA Integrated Disclosure Rule becomes effective on August 1, 2015.

Software companies, title insurance companies and closing attorneys have been speculating about this for many months. Now we have an answer, at least as to this mega-lender. Whether other lenders will fall in line remains to be seen. The stated rationale is that the process will allow Wells Fargo to consistently meet compliance and regulator expectations.

The announcement stated that Wells will continue to collaborate with closing attorneys to determine fees and other content required for the Closing Disclosure and to ensure that the lender has accurate information.

For purchase transactions, the closing attorney will continue to be responsible for the seller’s information and will prepare and deliver the seller’s Closing Disclosure. A copy must be provided to Wells Fargo.

The Closing Disclosure must be delivered three business days prior to the closing, and Wells Fargo anticipates this requirement will require that all the parties work together more than ever on scheduling closings.

Conducting closings will continue to be the responsibility of closing attorneys, but with increasing focus on compliance with the lender’s closing instructions, according to this announcement.

This announcement has a huge impact on the closing process. The closing attorney will continue to be responsible for gathering information required to generate the document that replaces the HUD-1 Settlement Statement, but Wells Fargo, not the closing attorney’s office, will actually generate and deliver the form.

Please recall that Wells Fargo is the lender that endorsed ALTA’s Best Practices. My best advice for residential closing attorneys in South Carolina who want to remain in the game after August, 2015? Get your office in compliance with Best Practices now so you will be prepared to implement the hardware/software changes this announced “collaborating” with lenders will require.

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